The Personal Income Tax Act (PITA), is the basis for calculating, deducting and remitting the monthly employee taxes and direct assessment for individuals in Nigeria.
The PITA requires all employers to file a return with the Relevant Tax Authority (RTA) of all emoluments paid to its employees, not later than 31st January of every year – this is called the Employers Annual Declaration and Certificate (Form H1) and Employers Remittance Card (Form G). Failure to file these returns within the stipulated time attracts a penalty of
N500,000 for companies and N50,000 for individuals.
Furthermore, every taxable person is required to file with the RTA a return within 90 days from the commencement of every year of assessment (31st March) – this is called Income Tax Form for Return of Income and Claims for Allowances and Reliefs (Form A). There is no penalty for failure to file this return.
Based on the provisions of this Act, all employers (for persons in employment) and the taxable persons are saddled with the responsibility to prepare and file these returns within the stipulated time in the states where the respective employees reside or where the taxable person is resident.
It is a known fact that there are numerous Payroll and Human Resources software aimed at assisting employers calculate and determine the taxes on employee earnings. However, we still see a number of companies failing to meet these deadlines. Even when they do, it is our experience that the returns are not accurate and as such leads to a lengthy tax audit exercise when the RTA comes knocking at your offices.
Filing of these returns are mandatory and not voluntary. The RTA is not obliged to issue a notice or demand to render these annual returns. It is therefore expedient that these returns are rendered timely and accurately.
The season to render these returns is upon us. It is time to balance your accounts, remit and file your returns to the RTA before the respective deadlines (31st January 2021 for Forms H1 & G and 31st March 2021 for Forms A). A template of these forms can be obtained from your respective tax stations of tax officers.
Below are some tips on how to go about ensuring that you meet the deadlines and that your returns are accurate, so as to avoid penalty and interest charges arising for inaccurate returns:
- Obtain the monthly master payroll schedules and annualise same. Thereby ensuring that the name / details of employees who may have left your business within the year under review are included in the returns. This would include any terminal of final payment made to such employees who may have been treated outside of the payroll software.
- Conduct a manual tax computation and compare same with the monthly tax remitted to the RTA on or before the 10th day of each of the month. If there is a shortfall, it is to your advantage that this is paid over to the RTA immediately. If, however, you have over paid, you may have the chance to claw this back in the December tax payment (if you have not already done so). If you have paid the December taxes already, you would have to track this and seek a credit or refund from future taxes due to the RTA.
- Ensure that you have copies of all of your monthly PAYE receipts from the beginning of the year (January through to December). This would have been issued to you by the collecting agents, typically the banks. You would require copies to support the preparation and filing of your Forms G.
- Also ensure that you have paid your development levy (
N100 for all employees on your payroll in the year) and business premises levy ( N10,000 for new registration and N5,000 for renewals). Copies of evidence of payment of these levies would be required to support your respective filings.
- It is our opinion that you should prepare and file the Forms A along with the Forms H1 & G. This would save you a lot of administrative time and effort.
- Filing of accurate returns saves you tax audit disputes as you can comfortable rely on these returns in the event of future tax audit, if any, to the extent that you ensured that your returns are accurate.
In conclusion, it pays for every employer, company or individual to file their returns promptly. It affords you the freedom to concentrate on your core business operations as you would have discharged one of your annual responsibilities to the state.
Finally, section 45 of PITA, grants a bonus of 1 percent of the tax payable to a person (employers or individuals) who files his/her returns early. Why not seek to take advantage of this and file your returns early!
The analysis, views or information expressed above are our interpretation of the applicable laws and general practices of RTA’s. This article is also expected to provide a general guide to the reading public on the subject matter. Therefore, you should engage a professional services firm (www.vi-m.com) to review your specific circumstance and provide you a more detailed and tailored opinion as it affects your business operations or person.